Eurozone crisis meeting in Brussels

Dec. 16, 2010 at 3:43 PM
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BRUSSELS, Dec. 16 (UPI) -- EU leaders met Thursday in Brussels amid concerns over the bloc's fiscal stability.

The body is still reeling from two massive bailouts for Greece ($145 billion) and Ireland ($113 billion) as other member states -- Spain, Belgium and Italy -- are in danger of falling into the debt trap as well.

In a bid to prevent further fallout, EU leaders meeting in Brussels for a two-day summit are to discuss the look of a permanent stability mechanism for indebted countries, whether to increase the eurozone's $1.3 trillion bailout fund and the possibility of creating pan-European bonds to boost confidence in the euro.

The common currency for 16 eurozone members has come under renewed pressure after Spain's interest rate for government bond sales was raised because of doubts about the country's fiscal stability.

German Chancellor Angela Merkel, who leads Europe's largest economy, on Wednesday in Berlin vowed that no EU member "will be abandoned."

But she has been a vocal opponent of some of the emergency measures, namely an increase of the bailout fund and the introduction of euro bonds, an issue that divides the bloc roughly in half.

Under the current national bond system, countries that are at higher risk of defaulting must pay more interest to borrow money than economically sound nations such as Germany.

Introducing euro bonds would mean the interest rate will be the same for every member state and that the risk is shared. Compared to current rates, Germany would have to pay more, while the likes of Greece and Spain would pay less.

Merkel wants to hold the private sector accountable when banks default, refuses to hand over more powers to Brussels and wants rules to safeguard the bloc from excessive speculation that damages struggling economies.

Spain, meanwhile, has insisted its economy is stable, adding that it won't need bailout money. While its public deficit is manageable and its large private banks are healthy, an array of local banks, the so-called caixas, is in trouble because the banks lent excessively during the country's real estate boom.

Kathleen Brooks, research director at, said Spain might have trouble getting financing down the road.

"Spain is the canary in the coal mine for the survival of the eurozone," Brooks told the BBC. "If it was to require a bailout the current facilities available ... would not be large enough to deal with it."

Ratings agency Moody's Wednesday said it was reviewing Spain's credit rating with a possibility to downgrade it.

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